Maryland Senate committee narrowly rejects ‘combined reporting’

Some believe the multiple-state tax system will eventually pass

Though the hot-button combined reporting business issue may be history in Maryland for another year, some believe the state will eventually pass such legislation.

“As more states pass this, I think eventually Maryland will have little choice but to approve it,” said Matthew Weinstein, a consultant with the Progressive Maryland Education Fund.

Leaders with chambers of commerce and other business groups vow to continue to oppose the long-debated measure that would alter the way businesses that operate in multiple states pay corporate income taxes to Maryland. Under combined reporting, companies that operate in multiple states would total their combined profits from all states, then pay a portion to Maryland based on factors such as how much property, payroll and revenues were reported in the state.

“None of our competitor states have enacted combined reporting, and in this time of economic uncertainly, Maryland should focus on policies that promote economic growth and job creation,” said Kathy Snyder, president and CEO of the Maryland Chamber of Commerce.

Since 2006, five states and Washington, D.C., have implemented combined reporting to bring the total to more than 25, according to a state legislative analysis.

The Senate Budget and Taxation Committee recently voted 7-6 to give the legislation an unfavorable report. The same committee also voted 7-6 against the measure last year.

Three Montgomery County senators on the committee cast votes supporting the legislation: Nancy J. King, Richard S. Madaleno Jr. and Roger Manno. Frederick County Sen. David R. Brinkley was among those opposing the measure.

Combined reporting was a big part of a report released this week by Progressive Maryland that said tax breaks and exemptions given to corporations and higher-income individuals cost the state at least $215 million annually.

The present tax collection system allows some companies to hide profits by transferring money to out-of-state subsidiaries, costing the state about $60 million a year in lost tax revenue, according to the advocacy group.

But Maryland chamber leaders and others disagree on the costs, saying that other studies show a lower amount, and that some businesses would pay less in taxes under combined reporting while others would pay more.

A state legislative analysis on the bill forecasts that general fund revenues would increase by $13.7 million in fiscal 2014 from additional corporate income tax money under combined reporting. Corporate income tax reform efforts have “significantly increased” in Maryland in recent years, and the state has taken steps to close loopholes such as those for Delaware holding companies, the analysis says.

The Maryland Business Tax Reform Commission, which was formed after the House approved combined reporting in 2007, and the Senate opposed it, recommended against adopting combined reporting about two years ago.

Key regional competitors Virginia and Pennsylvania are among the states that have not adopted combined reporting, making it an economic development issue, Brian Levine, vice president of government relations for the Rockville-based Tech Council of Maryland, said in a recent hearing.

A companion bill remains in the House Ways and Means Committee and had not been acted on as of Thursday afternoon. A similar combined-reporting bill sponsored by Del. Heather R. Mizeur (D-Dist. 20) of Takoma Park also remains in committee.